Dubai’s major developers are canceling or delaying projects until such times as the property market returns to boom time

Burj Dubai

Nakheel have canceled all sales on Palm Jebel Ali until further notice. Ali Mansour, project director, said,

“We will definitely reassess sales strategies in the light of the current market conditions. Everything is under review now and we have no new plans for the near future. There are no sales on Palm Jebel Ali happening as of now. The only sales that happened were in the year 2003-2004.

Thus far, despite aggresive marketing, Nakheel have only sold 52 of the 1,800 plots on the crescent “A”. We are assuming this means a delay on the Jebel Ali harbor development also.

Limitless have cancelled a launch of the Arabian Canal which was planned to run from the Dubai Marina, around the new airport and back to the Palm Jebel Ali.

Rufi Real Estate have canceled two residential towers that had been planned on The World and Meydaan, although a spokesman for the company stated that they were ‘optimistic that real estate prices would pick up by mid-2009.” Not optimistic enough to put their money where their mouth is apparently.

Tamweer has already fired 50% of their staff, both of Dubai’s major mortgage providers have had to be bailed out by Abu Dhabi’s real estate bank, Damak have cancelled a number of projects in Tunisia, India, Pakistan, Algeria and Morocco, Bonnington Land have cancelled three developments at Jumeirah village, although these were canceled due to lack of electricity rather than financial issues.

Other News from Dubai

In an attempt the stave off a complete collapse of the property market, Dubai’s government has decided to release information regarding the actual amount of debt in the emirate. Until yesterday, this was a closely guarded secret, and some i felt that this secrecy was one of the reasons behind the dramatic reversal of fortunes in Dubai. The phrase “shutting the barn door after the horse has bolted,” comes to mind, but -

According to Emaar chairman Mr. Mohamed Alabar, who is also a member of Dubai’s executive council, the level of debt owed by the government is $10 billion, with a further $ 70 billion owed by state-owned companies. Dubai’s GDP is $54 billion, which puts Dubai’s debt to GDP ratio at 148%. Draw your own conclusions from that.

Mr Alabbar, who was speaking at the Dubai International Financial Centre (DIFC) conference, added that the Government would support companies that got into financial difficulty because of the credit crisis. Mr Alabbar is head of a committee that has been set up to handle Dubai’s response to the global economic crisis and his comments are effectively a government guarantee. Mr Alabbar also said that Dubai’s debt of $10billion compared with sovereign assets of $90billion while its companies owed $70billion against assets of $270billion. Whether these are pre- or post-crash valuations was unclear.  “The Government can and will meet all its obligations going forward,” he said. “Dubai’s borrowing is not being used to cover expenditure or to provide subsistence, it is funding our long-term infrastructure development.”

The UAE Government is dominated by Abu Dhabi, the richest of the emirates, and its involvement is thought to be a signal to worried banks and investors that the vast wealth of Abu Dhabi is now implicitly supporting Dubai.

Mr Alabbar also said that Dubai’s largest companies would have to work together to find a way through the economic difficulties, particularly in the property sector.

Mr Alabbar’s Emaar, which is building the Burj Dubai, the world’s tallest building, will collaborate with Nakheel, which built the palm islands off the Dubai coast, and Dubai Holdings, the Government’s property unit. The three companies control 70 per cent of Dubai’s property development industry, but will be allowed to work together to limit supply and prevent the market from being flooded with new apartments, in the hope of keeping prices inflated.

Mr Alabbar said: “We have to recognize the reality on the ground and work differently. We have to collaborate and in time, in the future, we can be competitors again.”

After pressure from small investors eager to dispose of off-plan property, Emaar have also waived a clause that required a payment of 30% of the property value before a sale was permitted.

Dubai's property bubble bursts

After months of press releases and government promises that there will be no such thing as a bubble in Dubai, the big boys of Dubai are finally saying, “Beam me up Scotty, I think I’m in trouble.”

“Trouble,” would be the understatement of the year, and the developers are making it clear they are not one whit interested in the fortunes of the smaller investor. Despite the recent introduction of laws written to protect smaller investors, Dubai’s property developers are thinking up new ways of avoiding any responsibility and screwing every last penny possible from the situation as fast as the new laws are passed.

MiNC, developer of Prodigy 1 in Jumeirah Village South has put a new proposal to their current investors:

Pay more than the agreed price, or we will cancel the project and keep your deposit.

The wording was slightly different, but that is what it amounts to. According to MiNC, two banks have withdrawn funding and “the project is no longer financially viable. Costs have increased to the extent that MiNC would make a significant and material loss if it were to build this project.”

Gulf News

It is actions such as this that will finally deflate what is left of the Dubai bubble. A lot of confusion is surrounding Article 11 under Law 13, which guarantees investors - “In the case of canceling the contract, the developer may retain 30 per cent of the ‘contract’s value’, and the rule of (30-70 per cent of the money paid) shall be applied on amounts exceeding 30 per cent.”

Key words here are “contracts value,” not “monies paid,” as the Article originally stated. Arguments abound and opinions are divided amongst those who feel that Dubai no longer needs outside investors and the emphasis of government intervention should be in favor of protecting the developers, and others feeling (as we do) that the smaller investor is vital if Dubai wishes to be anything more than a “Disneyland in the desert.”

As things stand at the moment, if a small investor defaults (as is starting to happen on a large scale), the developer keeps 100% of the money in some cases, and developers are simply refusing to answer questions or deal with inquiries. A number of smaller investors are attempting to band together in an effort to at least recover the “70% of monies paid.” One such group can be contacted here:

investorslaw13@hotmail.com

Elsewhere, prices are falling dramatically, with distressed properties being offered at 40% discounts on Palm Jumeirah, which is still massively over-priced. If falls in the US and Spain are any indicator, some analysts are expecting Dubai’s prices to fall anything as much as 60% in the next few months.

Other property websites are now starting to report on Dubai’s bursting bubble, and here is a selection:

Reuters - Dubai real estate suffers as distressed sales rise
AOL Dubai Property boom halts as prices fall and jobs go

According to Mohannad Sweid, CEO of Depa, some of Dubai companies are in “denial” about the viability of projects in light of the global financial crisis.

We are at the denial stage where lots of developers know for a fact that their projects should be cancelled and they’re either not announcing it or they’re saying it’s going to be delayed. We cannot deny the effect [the crisis] has been having, we are a part of this world and I believe it’s just not right to say we haven’t seen any impact. What we have had in the GCC in the last three years is the difference between reality and non-reality. Our market research showed there will be 280 new hotels built over four years within the GCC. That was advertised all the time… If we look at the reality - how many hotels have been delivered - it’s hardly more than five or six hotels a year.

In terms of risk to his own firm, Sweid was confident that infrastructure projects would still go ahead.

In this region, a lot of infrastructure is not developed yet and these elements of infrastructure have to be developed - it’s not a choice,” he said, citing Dubai’s new metro system as an example. He added that Depa was still on track for growth for next year, but the “fears” were for 2010 and 2011.

The real question is not whether the Dubai bubble has finally burst, but more how far it will deflate. With property prices quoted as having risen somewhere in the region of 76% over the last year, a major correction is likely. Already prices have fallen 40% in most developments, and we feel it is going to deflate a lot faster than it blew up.

Some time ago, we suggested that Dubai’s property bubble was about to burst. A recent Dow Jones report suggest that time has come. A six-year real estate boom in Dubai that spurred a $475 billion building frenzy has ended, according to agents who say sales are collapsing amid fears that the global economic downturn will hit the sheikdom.

“Last month was a real disaster and worse is coming I guess,” Mehdi Zoghbi, an agent at Middle East Real Estate Consultants, told Zawya Dow Jones Sunday.

Zoghbi says that desperate sellers are now offering off-plan properties on the secondary market for a zero premium, effectively accepting a loss on their investment in order to offload quickly.

Dubai, the first Gulf sheikdom to allow foreigners rights to buy homes, may also be the first to see a crash in property prices as uncertainty over the region’s prospects and the global credit crunch have undermined investors’ confidence.

“Our commissions have fallen by up to 70% recently,” said Khaled Daji, an agent at Al Jabal Real Estate. “The most hit are the projects under development and those luxurious high end. We plan to survive for another six months to see how this crisis unfolds.”

Daji says that Dubai’s real estate watchdog needs to do more to stop the practice of “flipping” property and the payment of “key money” to reserve real estate.

But the city’s biggest developers like Emaar Properties and Nakheel are adamant that sales remain robust. Mohammed Alabbar, Emaar’s chairman and one of the architects of Dubai’s real estate boom, said in the company’s third-quarter statement that “we are very confident of our company’s fundamentals and future growth.”

That hasn’t stopped investors dropping the company’s shares. Emaar’s stock has fallen 62% since the beginning of the year, that’s more than the 48% fall in the Dubai Financial Market’s main index over the same period, according to Zawya.com data.

Earlier this month, Colliers International said the growth of property prices in Dubai slowed to 16% in the second quarter of 2008 from 42% in the first quarter. Morgan Stanley warned in August that property hotspot Dubai could see a 10% fall in prices by 2010.

A collapse in real estate prices will add to pressure on Dubai’s economy, which doesn’t benefit from the vast oil income enjoyed by neighboring Abu Dhabi. Property and construction are estimated to account for about 30% of the emirate’s economy.

And the buoyant economic conditions across the region that have underpinned Dubai’s real estate boom, which according to Middle East Economic Digest will consume $475 billion in capital spending, are now under assault.

Oil, which underpins the region’s economy, looks likely to fall further as demand across the globe weakens. Crude traded in New York closed down at $64.15 a barrel Friday.

Not Panicking

Tighter lending is also making life hard for many real estate agents, with buyers unable to secure loans for property without larger deposits.

HSBC Holdings, the largest international bank offering home loans for Dubai property, tightened its requirements last month asking borrowers to front up to 50% of the purchasing price for some homes. The bank will now only lend up to 70% of the total value of the property in the best cases, down from 85% last month.

The tougher terms are “to ensure that customers receive loans that they can afford to repay at a time of considerable uncertainty around the world,” the bank said in a statement to Zawya Dow Jones.

“The financial crisis is putting people off buying,” said Lisa Penderis Dubai-based real-estate agent. “End users are particularly impacted because banks are only lending up to 75% so people need to find a lot of cash for a deposit.”

Tony Stafford, a British commercial manager working in Dubai has like many of the 100,000 U.K. nationals living in the United Arab Emirates bought property in the sheikdom as an investment. He owns two apartments worth about 3 million U.A.E. dirhams ($817,000).

“It’s not a great time to be selling as banks aren’t lending,” Stafford told Zawya Dow Jones in a phone interview. “But I’m not going to reduce the price of the apartments because I’m confident things will pick up again before Christmas. I’m not panicking. I’m just waiting for the right buyer.”

Stafford, who remains bullish, says he will buy another property in Dubai and is now in a stronger position to negotiate on the price. His optimism is shared by Dubai’s ruler Sheikh Mohammed bin Rashid Al Maktoum who announced earlier this month plans for the AED350 billion redevelopment of the city’s Satwa district.

But whether buyers still exist in the current depressed economic mood is no longer guaranteed.

Source

Record attendances notwithstanding, the mood at this year’s Dubai Cityscape could best be described as “wary,” and the exhibition failed to lie up to expectations investment-wise. Despite announcements of new developments of epic proportions, this failed to translate into sales.

This year’s Cityscape was highly anticipated in the hope it would boost investor confidence after a rocky few weeks in global markets.

Rohan Marwaha, managing director of Cityscape said this year’s show had been about cautious optimism. People are thinking more about where and what they invest in.

In an apparent contradiction (other wise known as spin) the organizers say that there is “much more interest this year compared to last year,” yet property sellers are saying that potential buyers are afraid of investing.

Abdul Rahim, sales executive at RAK properties said sales during Cityscape 2008 were “a little bit down compared with last year.”

Mansoureh Ghezipour, property consultant, Best Homes Emirates Real Estate, said, “People trusted the market last year but this year they are afraid of buying. The number of visitors is higher this year but nobody buys.”

Sikander Aziz, sales executive of Bonyan International Investments Group, said the interest of visitors is higher, but the actual buying is low.

“There were a lot of buyers last year.” When asked the possible reason behind the lack of initiative to purchase, Aziz said, “Global liquidity conditions.”

Lack of transparency in Dubai’s banking system is another reason for the “cautious optimism.” Dubai’s banks, like many around the world are facing a lack of funds, and no matter how many announcements of new mega-projects, if there are not enough funds to go ’round, many of them will not be built, and there are already calls for government to step in and fill the current deficit.“Banks need the necessary capital to provide financing, and with funds flowing out of the country, the only option for the government is to step in,” said a senior bank official. Most banks refrain from being transparent in relation to the issue, and many claim that no liquidity crisis exists whatsoever, including the major banks.

“Transparency in such circumstances is crucial towards the government and the Central BankCentral Bank,” the official said.

By the end of 2007, total bank assets exceeded $272 billion, and they stood at $400 billion at the end of last June, according to the Central Bank, a figure that will fall by $136 billion as a result of the withdrawal of foreign funds.

To many observers, the levels to which share prices have plunged in reaction to the international financial collapse are very attractive indeed, as many companies are being traded at prices below their book value.

“This means that these companies will generate better value if liquidated, and it only reflects that the panic selling that is taking place is beyond any logic,” said Mohammad Ali Yasin, managing director of Shuaa Securities.

“The panic prevailing as a result of the crisis is not helping anyone, and what is certain is that smart money is cautiously building positions to benefit from this drop.

“The government can also benefit from the situation as the interference will not only restore confidence, but generate generous profits as well,” he added.

Meanwhile, UAE banks are on the verge of a serious crisis due to a $136 billion funding shortage, senior bankers revealed yesterday. With foreigners accounting for about 40% of UAE bank deposits the gap in the spread between total loans and advances and total deposit is increasing at an alarming rate

“Foreign deposits that are being withdrawn from the system in addition to the increasing liabilities compared to assets are forcing the UAE banks into a corner,” a top official at a leading bank said on condition of anonymity.

“The Central Bank did not actually pump Dh50 billion into the system, as these facilities are for banks to borrow. Instead, what is needed is strong government intervention by placing deposits with the bank to compensate for the outflow of foreign funds,” he said.

Total foreign deposits along with European Commercial Paper issues and Medium Term Notes stands at about 35% of total assets, according to a statement by the central bank last week.

Meanwhile, total bank deposits fell short of total loans and advances by more than $15 billion in June compared to a $5 billion surplus in June 2007, according to official statistics.

“These foreign funds were actually hot money that flooded into the country during the increasing speculation about the de-pegging of the UAE dirham from the US dollar, especially after Kuwait departed from the peg,” a senior executive at the National Bank of Abu Dhabi said.

“Now the trend has reversed, and accordingly we find more than $54 billion is being withdrawn from the system,” he added.

The end of speculation in the currency market accompanied by the mounting international financial turmoil forced foreigners to abandon their positions in the UAE to cover the losses.

The impact on the stock markets was obvious, where more than $80 billion was lost in market capitalization since the beginning of the year, of which $35 billion, 44% was recorded last week alone.

“For the government to interfere, is up to the concerned authorities, but as a market we cannot interfere, not even by diminishing the maximum limit down, a practice that proved a failure in Saudi Arabia,” a top official at the Dubai Financial Market said.